The Spanish directors of the BE festival, Isla Aguilar and Miguel Oyarzun, are backstage at Birmingham Rep, where this year's event is taking place. "This is where we're going to put the bar and cabaret stage," Oyarzun says, indicating the vast scenic workshop. They lead the way into the paint frame, a towering brick silo in which backcloths are suspended on industrial easels. "We're going to have live art performances in here," Oyarzun explains before unfurling the steel shutters that reveal the wing-space that is the auditorium. "And this is where we're going to have the restaurant." I can't help but notice a sign above the prompt corner that says No Food or Drink on Stage. "Ah, well, we can ignore that for a couple of weeks," Oyarzun smiles. "The BE festival is all about bending the rules a little."

Oyarzun and Aguilar have been bending the rules since they came to Birmingham from their home city of Madrid five years ago. In that time the BE festival has grown to become the country's quirkiest showcase for new, experimental European theatre, and is the only international event in which the interval is every bit as important as the performance. Each evening the audience has the chance to sample four half-hour shows from 14 countries; and at half-time everyone – cast, crew and public – sit down for a meal together on the stage. "Last year, we had the director of the Barbican sharing a bowl of soup with a Big Issue seller from the free-ticket scheme," Oyarzun says proudly.

It's no accident that a festival that places such a strong emphasis on food should have been cooked up over a curry. "We had recently come to Birmingham and were invited to an Indian restaurant by some of our new friends, including co-director Mike Tweddle and the guys from [Birmingham-based alternative theatre makers] Stan's Cafe," Aguilar says. "We were discussing our dream for an international festival in which everyone could eat, live and work together and Stan's Cafe immediately offered use of their space at AE Harris engineering works. Within one evening we had a manifesto and a venue."

What they didn't have was any funding, and the first festival in 2010 only took place because of a great deal of sponsorship in kind. "We asked local people if they'd be willing to put the artists up in their homes," Aguilar says. "We were overwhelmed by the generosity that people in Birmingham showed to two crazy Spanish people banging on doors."

This is a watershed year for the festival, as an upturn in AE Harris's order-book meant that it had to ask for its factory back. Birmingham Rep stepped in to offer the festival a home, though it presented the directors with a dilemma. "The Rep has always been a great supporter," Oyarzun says. "But we were a bit nervous about transferring the festival to a 'legitimate' theatre space. We were worried that we might lose our sense of identity."

Aguilar recalls the eureka moment that solved the problem. "I was looking at the vast spaces behind the scenes and it suddenly occurred to me that the scenic workshops are basically a factory for making drama. So then I thought, what if we turned everything back-to-front? It would be a chance for people to experience the industrial side of the theatre they don't normally see."

To keep ticket prices as competitive as possible, the festival has even introduced its own unit of currency. Netherlands-based performance artist Dadara will be present in the persona of CEO of his own financial institution, the Exchanghibition Bank. The only tender accepted at the bar and restaurant will be personalised notes issued by Dadara and known as the karma.

The exchange rate is an easily calculable one karma to the pound, but as Aguilar points out there will be a "bad karma" surcharge for anyone who wishes to use plastic. And if you find yourself short, you could always consider paying in vegetables. Catalonian director Quim Marcé will be coming to Birmingham to reveal how he managed to circumvent a punitive VAT rise on theatre tickets in Spain by selling carrots at the box office.

"It's hard to make a living as an artist anywhere, but particularly in Spain," Oyarzun says. "Back home, you could never have got a festival like this off the ground. Right now, Birmingham is a more exciting place to be than Madrid."